How to minimize errors in filling out Form 1099 NEC: Did you hire a non-employee to perform work for your business? If “Yes”, then you need to issue Form 1099 NEC to the non-employee. Most of the employers who hire a contractor face problems in filling out 1099 tax forms. Firstly, every taxpayer needs to identify the payments made to a non-employee. When the annual payments are above $600, then issue a Form 1099 NEC.
Are you a first-time filer? Don’t worry! We’ll let you know about how to minimize errors in filling out Form 1099 NEC. We have provided you the detailed information about revived 1099 NEC Form for the 2020 tax year.
Table of Contents
- What is revived Form 1099 NEC? to minimize errors in filling out 1099 NEC
- How to identify Form 1099 NEC contractor?
- Sources of 1099 NEC contractor income
- Federal 1099 NEC boxes information
- Methods of filing Printable Form 1099 NEC
- What are Form 1099 NEC exemptions?
What is revived Form 1099 NEC? to minimize errors in filling out 1099 NEC
Form 1099 NEC is an old tax form which revived to use for the 2020 tax year. The IRS revived this tax form to clarify the issues enacted due to PATH Act 2015. In the same vein, to stop Scammers’ activities and to file fraudulent returns. IRS can easily identify the amount the contractor earned throughout the year using 1099 tax forms.
Revived Form 1099 NEC used to report non-employee compensation paid throughout the year to a contractor. It clears the confusion created by the old 1099 MISC reporting NEC and miscellaneous income through a single form. Most importantly, it has a separate filing deadline compared to the other 1099 series of tax forms.
How to identify Form 1099 NEC contractor?
The most important step when filling out the form is to recognize the Form 1099 contractor. Given below are the guidelines which help a business individual to identify Form 1099 NEC contractor:
Non-employee type
Issue the Form to non-employees who work as a part of a business but not treated as an employee. The type of non-employee includes an individual, business, estate, entity, or a corporation but not S or C corporations. A single-member LLC is also considered a self-employed individual.
Performance of work
If you hire an individual who performs work for your business or trade, then consider that individual as a 1099 NEC contractor. For example, if you hire a web designer to design your organization’s logo, then consider the individual as a 1099 NEC contractor.
Compensation amount
The amount paid to an individual exceeds $600 in a calendar year for performing services, then the individual treats as a 1099 NEC contractor. The payments made below the threshold amount not reported through the Form. But the individual is considered as a 1099 worker.
Sources of 1099 NEC contractor income
Following are the sources of 1099 NEC contractor income:
Prizes and rewards
Compensation paid to a non-employee as a prize or reward for performing services on the course of business is considered as 1099 NEC contractor income.
Example: Jackson rewarded an amount of $600 in a calendar year by an organization for providing services.
Services performed for business purpose
Income paid to a person for performing services for business is a source of contractor income. For example, web designers, electricians, plumbers, etc., who perform service for an organization.
The fee paid to the attorney
Attorney receives 1099 contractor income for performing services on behalf of the organization and receives compensation in a tax year. For example, a fee paid to a law firm for performing services on a course of business or trade.
Purchasing aquatic life
Amount paid to purchase a fish from the person who involves in the trade of catching fish/aquatic life fall under 1099 contractor income.
Federal 1099 NEC boxes information
The following information is included in the Federal 1099 NEC boxes:
Non-employee compensation amount
Enter the NEC amount in box 1 of the Form. According to the IRS, the payer needs to enter the compensations exceeding $600 annually in box 1.
Example: Services performed by someone for parts or materials, professional service fees, fee-splitting, etc.
Federal tax withholding
Include the amount of backup withholding taxes from whom the organization withheld any federal income tax under backup withholding rules in box 4.
State information
When the payer withholds state taxes, then include the information in boxes 5, 6, and 7. This includes information regarding the name of the state, tax amount withheld, and state tax ID.
Methods of filing Printable Form 1099 NEC
Following are the methods to file printable Form 1099 NEC:
Traditional filing
The traditional filling of Form 1099 NEC requires the filers to submit the forms through paper. They need to collect the Form from the nearby IRS offices or else order them online. As we know, paper filing forms require manually filled out. This may lead to facing the risk of error filing or providing incorrect information. Also, the taxpayers require to choose paper filing Form 1099 NEC when the paper forms are less than 250.
Electronic filing
The easiest and most secure method to submit 1099 tax returns to the IRS is through “E-filing”. It is the most common method used by businesses that submit more than 250 1099 NEC tax forms to the IRS. The IRS has provided certified e-file providers to file 1099 tax returns electronically. Also, choose an IRS authorized e-file provider to file Form 1099 NEC within the due date.
What are Form 1099 NEC exemptions?
Form 1099 NEC exemptions discussed below:
- Don’t file the Form when you hire an employee to work and pay them a regular salary.
- Payments made to c or S corporation exempted to report through 1099 NEC tax from.
- Also, non-business expenses or payments not reported through the Form.
- Medical and health care payments are not reportable.
- Also, payments made as rents, dividends, gross proceeds, etc.,
Form 1099 online is an IRS trusted e-file provider where you can file your 1099 taxes safe, secure, and conveniently. We have provided step-by-step guidance through which first-time filers can easily file their tax returns online. Along with guidance, we also provided the user’s cloud storage for nearly four years. Thus, through cloud storage, the filers can easily know the previous filing history for up to 4 years.